Design 2147 CEO Sisto Martello recently spoke with Ken Colao, the Founder, President, and CEO of CNY Group, about the current landscape of hotel development in New York City. Here are some of the important takeaways from the conversation.
Q. How has the hotel scene in New York City changed over the past five years?
Over the past five years, New York City’s hotel and hospitality landscape has experienced significant transformations driven by several key factors. The pandemic dramatically reshaped the hospitality industry, leading to a steep decline in tourism and business travel. This was immediately followed by prolonged supply chain disruptions that drove building material costs to unprecedented levels. As the market recovered, new zoning laws, such as the 2021 Citywide Hotels Text Amendment, have made it harder to meet rising demand for hotel rooms. This amendment requires developers to obtain special permits for any new hotel projects, a process that can take anywhere from 20 to 24 months through the Uniform Land Use Review Procedure (ULURP), adding time, cost, and uncertainty. These hurdles are evident by the fact that only one special use permit has been issued under this new program.
Additionally, the recent tightening of short-term rental regulations has increased demand for traditional hotels, particularly as Airbnb operators face new restrictions. In the outer boroughs, developers now face limitations in manufacturing zones, where transient hotel developments were previously a permitted use.
The silver lining with all the regulations and restrictions is that the projected shortage of available rooms is fueling a resurgence of RevPAR (a key metric used in hotel valuation) and increased valuations. Overall, we have witnessed a robust recovery fueled by increased domestic travel and a resurgence of international visitors. New York never backs down, and these trends are a testament to the resilience of our industry.
Q. What are some of the construction challenges you’re seeing in hotel development?
In New York City, the challenges in hotel development are as dynamic as the city itself. First, New York is the world’s most competitive and efficient real estate market. Land costs are high, and finding suitable sites for hotel construction in prime areas requires vision, lots of capital, and some luck. Logistics is another critical factor that drives up costs. You’ve got narrow streets, active neighborhoods, and the constant need to minimize disruption. Staging areas for materials, deliveries, and equipment are limited, requiring meticulous planning and execution.
New York’s hotels have also played a unique role in recent years. During the pandemic, the COVID-19 Hotel Program converted many hotels into transient homes for healthcare workers and those needing isolation space, temporarily taking them offline from the hospitality market. Many of these hotels are now being used to house migrants as part of the city’s response to the humanitarian crisis. Since late 2022, roughly 135 hotels have transitioned to shelters under the city’s “Sanctuary Hotel Program,” removing over 16,000 rooms from the hotel market. This has increased the shortage of available rooms, just as tourism demand returned to near-record levels.
While still transient by design, hotels are being designed to be closer and similar to residential living—a home away from home with the feel of comfort and improved efficiency through greater use of technology.
Lastly, timing is everything. Hotels can be highly susceptible to market conditions so delays can impact the return on investment. With rising interest rates and fluctuating tourism demand, delivering a project on time and within budget is crucial to maintaining profitability in this highly competitive space. It’s a balancing act where strategic foresight and experience make all the difference.
Q. What are some of the opportunities you’re seeing for innovation in development or construction?
Several key trends are driving innovation in hotel development and construction. First off, the integration of smart building technologies is becoming more prevalent, enhancing energy efficiency and improving the guest experience through automation and technological solutions. Hotel flags are also becoming more important than ever. The branding of a hotel can significantly influence guest expectations and market positioning. Whether it’s a luxury or boutique brand, the flag sets the tone for what guests anticipate regarding service, design, and amenities. This makes it crucial for developers to partner with the right brands to meet evolving guest preferences.
Rooftop spaces are another area that sees creative use. Once an underutilized part of the building, rooftops are now prime real estate for commercial spaces like bars, restaurants, and even event venues. These rooftop spots offer stunning city views and serve as a major draw for both locals and tourists, creating a unique experience that sets a hotel apart from its competitors. Rooftop bars and restaurants are becoming central features of new hotel projects, transforming what was once wasted space into high-demand amenities that enhance the overall guest experience. Additionally, there is a growing opportunity for adaptive reuse, where existing buildings can be converted into hotels and residential spaces. For example, our team recently completed the Fifth Avenue Hotel project, which skillfully integrated a new 24-story tower with an existing McKim, Mead & White building to create one of New York’s most celebrated new hotels. This approach preserves the city’s architectural heritage and aligns with sustainability goals by minimizing the need for new materials and reducing construction waste.
Q. What should owners be thinking about when considering hotel development in NYC?
One of the most critical early decisions is to either buy a site with pre-existing hotel use or be able to capitalize on holding a property while securing a special use permit. It is also critical to properly evaluate the demand and the right brand for the given location. This choice sets the foundation for the project, defining market positioning, guest expectations, and design. Securing the appropriate flag/brand early helps establish a clear identity for the hotel and ensures alignment with the target market and early commitment for financing. Amenities and food & beverage programs are particularly important to nail down as quickly as possible. A well-designed restaurant or rooftop bar drives foot traffic, generates additional revenue, and attracts guests and locals. These spaces enhance the guest experience and help integrate the hotel into the neighborhood, making it a destination for more than just travelers while efficiently utilizing existing spaces.
Another consideration is whether to operate the hotel as a union or non-union property. In New York City, this decision has significant financial and operational implications. Union operations typically come with established wage and benefit and work rule structures, while non-union hotels offer greater flexibility in labor management.
Finally, financial readiness is crucial. The development process requires substantial investment for construction and navigating the regulatory landscape. Owners need to be financially prepared to manage these costs and stay on track through the various pre-development and development stages.
Q. The “audiences” for a hotel include the people from out of town who will be staying there and the local residents who live and work in the neighborhood and may become patrons of the bar or restaurant. How do you find something that works for both groups?
Balancing the needs of out-of-town guests and local residents is essential to creating a successful hotel. It starts with designing spaces that are versatile and welcoming for all guests. For out-of-town travelers, particularly families, there’s a growing demand for extended stay and suite options, offering the convenience and space that make longer trips more comfortable. On the other hand, business-oriented travelers who stay at hotels often prefer something more transient: quick, efficient stays with easy access to amenities like dining and entertainment.
What every guest looks for is location, service, and appealing accommodations. Travelers are generally drawn to hotels in prime spots, close to key attractions, business districts, or transportation hubs. They’re not just looking for a place to sleep; they’re seeking experiences, from great dining and bars to unique social spaces. For higher-end properties, having well-designed on-site restaurants, rooftop bars, and lounges is a major draw, and these spaces also appeal to locals, making the hotel a destination for the neighborhood. This could involve partnering with local chefs, artists, and businesses to create a distinctly regional “flavor” that resonates with residents and enhances the visitor experience. Additionally, offering amenities such as co-working spaces or hosting community events can help integrate the hotel into the fabric of the neighborhood, making it a place where both locals and visitors feel equally at home.
Q. CNY is a Certified B Corporation. Does that have any impact on how you approach hotel development?
Being a Certified B Corporation shapes every aspect of our approach to hotel development, especially regarding sustainability and community engagement. At CNY, this certification reflects our shared commitment to using Business as a Force for Good, and it guides every aspect of our work. Our process and standards are designed to provide owners with a straightforward path to securing various levels of LEED and WELL certifications for their properties. From selecting eco-friendly materials to incorporating efficient waste management systems and energy conservation that minimize environmental impact, we prioritize sustainability across all phases of construction.
Our certification also requires us to consider the impact of our decisions on all stakeholders, including the environment, our team, clients, and the communities where we operate. Stakeholders are an integral part of our project teams, and we work closely with local communities and vendors to ensure developments align with local needs and values. By fostering these connections, we create projects that benefit owners and contribute to the local community and economy through initiatives like local hiring, which brings jobs to the community and strengthens the bond between the hotel and its surroundings. This holistic approach ensures our projects are financially successful and contribute positively to the local community and broader environment.
